ASX Sheds $60bn as Surging Bond Yields Rattle Investors
The Australian share market shed roughly $60 billion in value in a broad sell-off that dragged down every sector, as a sharp rise in bond yields rattled investors on both sides of the Pacific.
Speaking to the ABC's The Business, Jamie Hannah said the slide largely mirrored overnight losses on Wall Street, where the S&P 500 dropped about one per cent in the final hour of trade as negative sentiment from the bond market spread into equities. Australia, he said, typically takes its cue from US markets and then compounds the move with its own domestic worries, which explains why local shares fell further than their American counterparts.
At the centre of the turmoil is a rapid climb in government bond yields in both the United States and Australia, which have reached levels not seen in two decades. Hannah explained that higher yields ripple through the entire economy. Governments face steeper interest bills on the debt they issue, companies find it more expensive to borrow for growth, and households are squeezed by rising mortgage repayments that leave less money for everyday spending.
Because share prices largely reflect expectations of future earnings, that combination of higher costs, weaker growth and less available capital is bad news for company valuations across the board. Hannah noted that yields have been this high before, roughly 20 years ago, but it is the speed of the latest increase that is causing the greatest strain, leaving businesses, consumers and governments little time to adjust.
Asked whether the sell-off signalled a deeper reckoning for markets, Hannah was cautious. He pointed out that recent US economic data has been solid, even though the world's largest economy continues to wrestle with a significant debt load. Australia, by contrast, is being shaped by its own set of domestic pressures, putting it on a somewhat different path to the US.
Hannah's advice to investors was to keep a long-term perspective, arguing that bouts of volatility are a normal feature of markets and tend to smooth out over time. He said he remained optimistic about the Australian share market's prospects over a five-to-ten-year horizon, even as he acknowledged that the next few months are likely to stay choppy. With the recent surge in bond yields still working its way through company balance sheets and household budgets, he expects further turbulence before conditions settle.
For now, the message from market watchers is one of patience: short-term swings driven by the bond market are likely to persist, but they are not expected to derail the market's longer-term trajectory.
Frequently Asked Questions
The fall tracked a sell-off on Wall Street triggered by rising bond yields, with Australia's market amplifying the move due to its own domestic economic pressures.
Higher yields tend to push up mortgage rates and borrowing costs generally, leaving households with less disposable income and companies facing higher costs to raise capital.
Analysts expect short-term volatility to persist for several months as the economy adjusts to higher rates, but remain optimistic about the market's long-term outlook.